Glaxo's brand extensions lack fizz

GlaxoSmithKline Consumer Healthcare (GSKCH) has two winners – Boost and Horlicks, which has been around for 140 years and became part of Glaxo’s portfolio when the drug giant merged with SmithKline in 2000. But the company’s ambition to grow beyond its core malted food drinks products in India has seen only a muted response.

Glaxo has launched over a dozen such brand extensions in the last four years comprising noodles, biscuits, nutrition bars, flavoured milk, oats, among others. But barring biscuits and to a certain extent, oats, the experience hasn’t been great. In fact, many of the company’s new launches such as sports drinks Lucozade, Horlicks Nutribar, Horlicks Chill Dood and Horlicks Foodles have either been withdrawn or scaled down.

“New launches from the company have not found much success, with non-core business still contributing only 6.5 per cent of sales (up from 5.5 per cent in the past 10 years),” says Sanjay Singh, analyst with foreign brokerage Standard Chartered Securities in his recent note.

Experts are divided on brand extensions. While some say brand extension is the best way to leverage the credibility of an established brand, others say many big brands have failed to create sustainable extensions and there is no use in entering a category (with brand extension) which is not closely related with the mother brand in the minds of consumers.

The company’s efforts at brand extension started about six years ago when Zubair Ahmed, managing director of GSK Consumer Healthcare, persuaded the UK parent to extend the Horlicks brand to other categories. The company basically had a three-tier strategy to grow.

First, investing in the original Horlicks and keeping the promise relevant and the imagery contemporary; second, expanding the brand’s footprint into new health drink extensions where it taps consumer segments who may not be using the category (eg Junior Horlicks, Women’s Horlicks, Mother’s Horlicks, Asha, Horlicks Lite etc) and third, expanding the brand to new categories like cereal bars (Horlicks NutriBar), chill dood, biscuits, etc.

While the first two parts of the strategy have helped the company grow, it is the third part that has attracted criticism. In late 2009, it extended Horlicks that stood for health and nutrition into noodles, widely perceived as unhealthy junk food. This led to investors’ concern about a brand erosion of Horlicks, which contributed over 70 per cent to the Rs 31,640 crore revenue in 2011. The company’s net profit for the year was Rs 4,512 crore.

By launching Foodles, Glaxo claimed to pitch for a healthier option in the instant noodles segment as it came with “Health Maker” sachet containing essentials of five vitamins. The initial commercial showed a mother who tries her best to stop the son from consuming noodles which are unhealthy. With the ad, Horlicks also made it clear that existing noodles in the market are not as healthy. The signal was obvious: the company was taking on market leader Maggi in the Rs 2,500 crore instant noodle category. No wonder, the unhealthy noodles in the commercial had striking resemblance to Maggi noodles. But Foodles’ success has been way elow expectations.

“Foodles is back on the drawing board,” said an analyst who did not wish to be identified. “We would like to know when it would be discontinued,” she said.

Analysts tracking the stock are concerned, with rival Abbot Laboratories getting aggressive with premium children health drink brand, PediSure, which has recorded a high single-digit market share already.

Malted food products are largely seen as a substitute to milk. Initially, the demand for the products was high in some parts of the country where milk supply was not sufficient. But gradually the demand petered out.

Glaxo declined to comment on detailed queries. In an emailed response, the company spokesperson only said,” As an organization, we believe in consistent innovation to provide products with better and advance benefits.” Further, Glaxo cited the success of Horlicks Oats and Horlicks Nutribic biscuits.

But some brand experts are sympathetic towards Glaxo. “Marketers look for diversification when sales start reaching a plateau,” says Anmol Dhar, chief executive officer, Superbrands, an independent arbiter on brands. “Glaxo’s attempt to diversify into an unrelated territory is in the right direction for long-term growth,” he adds.

An analysis of the company’s performance over the last 20 years shows that sales growth declined to an average 12 per cent in the 2001 to 2011 period against 17.7 per cent in the previous 10 years of 1991 to 2001. The company has not reported its annual results for 2012 yet.

Glaxo is, however, not new to the lukewarm extension to new products. In the late 1990s, its two new products, Aquafresh toothpaste and Ribena, a black currant drink, failed in the Indian market.

Glaxo also markets over the counter (OTC) brands like Eno, Iodex, Crocin, Breathe Right and Sensodyne from GSK Asia. Eno and Crocin are market leaders and Iodex ranks number two in the segment. Analysts say the company may now bring more such products from its parent for reviving its growth in India.